Predicting the next debt defaulter
Which municipal governments in Massachusetts are more likely to go into default? Brookline or Brockton? Lincoln or Lowell? Burlington or Chelsea? The answers are obvious. The poorer communities with shakier tax bases. Now apply the same general logic to the entire debate about sovereign debt. Floyd Norris argues, logically, that a “bottom-up” analysis of sovereign debt is usually a much better way to predict future defaulters. Nations with more vibrant private sectors are simply better off than nations with anemic private sectors. The debate over sovereign debt is not purely about fiscal imbalances. So back to variations of the opening questions: Which national governments are more likely to go into default? Germany or Greece? Britain or Portugal? Norris:

The economic debate now should be focused on keeping the federal government from someday being similar to Greece, with a weak private sector and a bloated government that cannot collect taxes to meet its obligations.

There is no risk of that in the near term. The United States government can print dollars to avoid default, but it is not having to do so. It can borrow at low rates because investors around the world still trust it.

To keep that trust in the longer term, the economy must grow.

Think of this the next time Republicans harp on short-term deficits or when Democrats propose a new “stimulus” package that primarily benefits the public sector. They're both getting it wrong.

Update -- Reader No. 1 writes in:

I realize you want to stay evenhanded but most deficit-harping is neither on short-term impacts or by Republicans exclusively - nor is it harping; it is genuine concern on the part of non-statists about the long-term impacts of deficits crowding out private investment and savings and crippling future standards of living for today's children. Maybe this will change if/when today's workers realize that they will be long-lived retirees and also therefore likely to have future living standards crippled by the long-term effects of today's spending orgies.

Please see this diagnosis of the failure with the bailout bill.

Another great Peggy Noonan column.

Love that "I realize you want to stay evenhanded" line, as if I might not actually believe what I write. But that's how ideologues think. Everything's got to be black or white, one side or the other, no gray areas in between. ... Hey, maybe I should get more involved in the Great Debate that ideologues are now waging and that may well shape the very future of our beloved nation, i.e. whether the New Black Panthers Party or the Tea Party is more racist than the other. ... Snort. ...  ¶ 5:34 AM